Amazon, Google Advance In Quest To Be Grocers

Internet leaders Google and Amazon.com are advancing in their mutual quests to be ... grocers.

Reports say Amazon.com (AMZN) is set to expand its now-small fresh-grocery delivery service, AmazonFresh, into California. That could set the stage to take on Google's (GOOG) Google Shopping Express, which is testing a fledgling grocery service in San Francisco.

While the companies have managed to produce in many areas, neither is noted for food, except for their highly regarded employee food services. But they are trying to crack an e-commerce niche best known for the spectacular failure of dot-com bubble flameout Webvan more than a decade ago.

Established grocers and tech startups have been trying to revolutionize the supermarket industry for years, with little luck.

"The jury's still out," said Jeremy Levine, a partner at Bessemer Venture Partners active in e-commerce investments, and a director at review site Yelp (YELP). "But big companies like Google and Amazon are keen to understand (this market), because the numbers are just gargantuan."

There are more than 37,000 U.S. supermarkets, and sales topped $602 billion in 2012, says the Food Marketing Institute.

Those figures have attracted many, including much-hyped Webvan. That San Francisco online grocery business raised $375 million with a 1999 IPO, only to go bankrupt two years later.

Some smaller players are making a go of it in the online grocery field. They include PeaPod, a once-public company that operates mostly in the Northeast, and FreshDirect, which delivers primarily in New York City. Some regional supermarkets, including California-based Safeway (SWY), deliver goods customers can order online.

AmazonFresh has been in trials in Seattle for years. It's expected to expand to Los Angeles this month, Reuters reported this week. If that succeeds, it could head to San Francisco. Amazon didn't respond to a request for comment.

Low Online Penetration Rates

The expansion makes sense because Amazon can take advantage of the "low online penetration" in the grocery industry, RBC analyst Mark Mahaney wrote in a research note Wednesday.

Only in March did Google start its first public test of a grocery delivery service, and just in San Francisco. Google Shopping Express is invite-only, for now. Shoppers order groceries online but can choose among several providers, and a Google contractor will deliver the goods to their door that day.

Google is partnering with several national chains, including Target (TGT) and Walgreen (WAG), as well as local stores such as San Francisco's Blue Bottle Coffee. Google wants to make it as easy to buy locally as it is to buy from national chains, said a person briefed on Google's plans.

Internet leaders Google and Amazon.com are advancing in their mutual quests to be ... grocers.

Reports say Amazon.com (AMZN) is set to expand its now-small fresh-grocery delivery service, AmazonFresh, into California. That could set the stage to take on Google's (GOOG) Google Shopping Express, which is testing a fledgling grocery service in San Francisco.

While the companies have managed to produce in many areas, neither is noted for food, except for their highly regarded employee food services. But they are trying to crack an e-commerce niche best known for the spectacular failure of dot-com bubble flameout Webvan more than a decade ago.

Established grocers and tech startups have been trying to revolutionize the supermarket industry for years, with little luck.

"The jury's still out," said Jeremy Levine, a partner at Bessemer Venture Partners active in e-commerce investments, and a director at review site Yelp (YELP). "But big companies like Google and Amazon are keen to understand (this market), because the numbers are just gargantuan."

There are more than 37,000 U.S. supermarkets, and sales topped $602 billion in 2012, says the Food Marketing Institute.

Those figures have attracted many, including much-hyped Webvan. That San Francisco online grocery business raised $375 million with a 1999 IPO, only to go bankrupt two years later.

Some smaller players are making a go of it in the online grocery field. They include PeaPod, a once-public company that operates mostly in the Northeast, and FreshDirect, which delivers primarily in New York City. Some regional supermarkets, including California-based Safeway (SWY), deliver goods customers can order online.

AmazonFresh has been in trials in Seattle for years. It's expected to expand to Los Angeles this month, Reuters reported this week. If that succeeds, it could head to San Francisco. Amazon didn't respond to a request for comment.

Low Online Penetration Rates

The expansion makes sense because Amazon can take advantage of the "low online penetration" in the grocery industry, RBC analyst Mark Mahaney wrote in a research note Wednesday.

Only in March did Google start its first public test of a grocery delivery service, and just in San Francisco. Google Shopping Express is invite-only, for now. Shoppers order groceries online but can choose among several providers, and a Google contractor will deliver the goods to their door that day.

Google is partnering with several national chains, including Target (TGT) and Walgreen (WAG), as well as local stores such as San Francisco's Blue Bottle Coffee. Google wants to make it as easy to buy locally as it is to buy from national chains, said a person briefed on Google's plans.

Shopping Express is a "logical step" as the company looks to make more money from retailers who already are paying for Product Listing Ads, according to Baird Equity Research analyst Colin Sebastian. In 2012, Google transitioned its Product Listing Ads to a paid service called Google Shopping. That service places ads for products next to organic search results for those same products.

So, if you searched Google for a product, you might someday be prompted with a question like: "Want it delivered today?" Levitte explained. "Since most people use Google Shopping as their main price-comparison engine these days, the service has a great chance to compete against Amazon and eBay (EBAY)."

One longtime concern about the potential of online shopping is whether e-commerce can match the in-person experience. Many shoppers prefer to pick out their own banana or cut of beef.

AmazonFresh attempts to assuage those worries by offering more detail about its produce.

If, for example, you prefer to buy green bananas, AmazonFresh lets you choose bananas that are "green." You can also choose "ripe" or "ripe & ready," the latter distinction meaning they'll be perfect to eat right when they arrive.

"Personally, I think that's borderline ridiculous," he said, pointing out the success of e-commerce overall. "It sounds a lot like the people who said, 'I'll never buy a shirt if I can't try it on first.'"

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